This blog is designed to record the investment journey of a UK based small investor. I hope to make a modest contribution to the collective wealth of investing knowledge made freely available to ordinary people. I am the author of four books [see sidebar and books tab]

Monday, 15 May 2017

Scottish Mortgage Trust - Final Results

Scottish Mortgage is an actively managed, low cost
investment trust, investing in a high conviction, global portfolio of companies
with the aim of maximising its total return to its shareholders over the long
term. The managers aim to achieve a greater return than the FTSE All World
Index (in sterling terms) over a five year rolling period.

Having waited some
time for a pull-back in the share price without success, I decided to add the
trust to my SIPP portfolio at the start of the year and made my initial
purchase at 338p. The share price has advanced 15% to currently 389p.

The trust has today issued results for the full year to end March 2017 (link via Investegate). Share price total return is up
41% compared to 33% for the benchmark FTSE All-World index. Scottish Mortgage has increased total net
assets to more than £5bn making it one of the UK's largest investment trusts.
It was recently promoted to become the only investment trust in the FTSE 100
and this has provided a boost to the share price as it now has to be held by
all the FTSE 100 index funds.

The managers, James Anderson and Tom Slater run
a conviction portfolio of around 70 shares. The result is a portfolio dominated
by big holdings in some of the companies involved in the new world of social
media, the internet, healthcare, eco-friendly energy and gene therapy.

3 Yr Performance (click to enlarge)

The top ten holdings
account for 54% of the portfolio and include Amazon 9.5%, Baidu 4.4% (China's
equivalent of Google), Alibaba 5.1%, Facebook 4.8%, Tesla Motors 6.8% and
Alphabet (Google) 3.7%. Some 10% of the portfolio is invested in unquoted
companies - Dropbox, peer-to-peer lender Funding Circle and airbnb to name
three I am familiar with.

Largest holding Amazon has become a giant in global
retail. Over just 10 years it has grown more than 20-fold from a market cap of
$20bn to currently $460bn.

Many of these network businesses
now seem to have reached a critical tipping point, whereby their sheer
dominance and scale become a reinforcing competitive advantage. This stems from
the developments within machine learning and artificial intelligence (AI). The
increased level of global connectivity, through the combination of the
relatively new infrastructure of the mobile internet, social media and smart
devices, has produced an explosion in the proliferation of data. The volume of
this is now so great that no human could hope to curate the content. It will
require machine learning and AI to process it. The leaders in these fields need
access to the best data sets, produced by the largest networks. It is no
accident that Baidu, Alphabet, and Facebook are leaders in this area.

Scottish Mortgage
offers a clear, consistent and simple proposition: a portfolio of long term
investments in what the managers believe to be the best growth businesses,
operating in any industry and anywhere around the world.

Over the past ten years, the trust has delivered
a return of 302% (second only to Linsell Train) compared to 148.7% for the All-World index. Although this is
essentially a global growth trust, it is worth noting it has increased its dividend
every year for the past 33 years. However, due to the share price appreciation,
the current yield is 0.8% (about the same as an average savings account!).

Obviously I am
pleased with progress since my recent purchase and hope to add to my initial
holding when there is a pull-back down the line but for now the current holding
will return to the bottom drawer.

As ever,
this article is merely a record of my personal investment decisions and should
not be regarded as an endorsement or recommendation -always DYOR!

7 comments:

It's a great IT in the longer run if you can sit and wait. I topped up my holding recently on the grounds that the growth will come from both capital gains and dividend reinvestment. The yield really does suck right now, but their history of steadily raising their dividend, so I bought for that hope as well. Do you plan to reinvest those dividends?Cheers,FiL

In the past I would not have considered this due to the low yield however, like Lifestrategy, I can take income from the sale of shares which have increased 300% over the past 10 yrs if needed but for now its early days and will probably leave well alone and forget. The small amount of dividend income will likely be withdrawn as it would not be economical to reinvest.

I think that was my conclusion...wait a long time for a pull-back which never seems to come along and I should have just bought 2 yrs before I actually pulled the trigger. I see it it your best performing IT by quite a distance.

BTW well done with your latest addition of Tritax..hope it does ok for you.